1

The Accounting Historians Journal Vol. 18, No. 1 June 1991
Roger Daniels UNIVERSITY OF SOUTHWESTERN LOUISIANA
and Dale L. Flesher UNIVERSITY OF MISSISSIPPI
THE CHICAGO, ROCK ISLAND AND PACIFIC RAILROAD COMPANY: AN EXAMINATION OF CONTINGENT LIABILITIES OF 1903-1904
Abstract: The issue about disclosing contingent losses arising from lawsuits has been an accounting problem for decades. Prior to 1953, there was no mandate for recording or disclosing such contingencies. In this study, the 307 court cases brought against the Chicago, Rock Island and Pacific Railroad Company during 1903 and 1904 are ana-lyzed to determine the impact of nondisclosure in the annual reports. Despite thirty-nine of these cases involved deaths and fifty concerned injuries to employees or passengers, the simple dollar amount of total litigation does not meet a threshold of materiality. Under current reporting requirements, however, some of these cases would have been disclosed. From the relative size of the amounts in dispute, it does not appear that nondisclosure of contingent losses from lawsuits were significant enough to mislead investors.
INTRODUCTION
It has long been understood that accounting treatment of contingent liabilities could substantially impact the financial position of a business enterprise and directly affect decisions of financial information users. The accounting profession has pro-vided a framework for the recognition of contingencies. In 1975, the Financial Accounting Standards Board issued Statement Number 5 which establishes procedures for accounting for such contingencies. The Statement defines a contingent liability as
an existing condition, situation, or set of circumstances involving uncertainty as to ... possible ... loss ... to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur. Resolution of